Does Foreign Direct Investment Improve the Productivity of Domestic Firms? Technology Spillovers, Industry Linkages, and Firm Capabilities

2009 ◽  
Author(s):  
Feng Helen Liang
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Technology Spillovers ◽  
Firm Capabilities ◽  
Domestic Firms

Does foreign direct investment influence R&D activity in the host country? Evidence from Vietnam

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Van Ha ◽  
Mark J. Holmes ◽  
Gazi Hassan
Keyword(s):  
Foreign Direct Investment ◽  
Foreign Investment ◽  
Direct Investment ◽  
Probit Model ◽  
Innovation Activity ◽  
Heckman Selection Model ◽  
Content Type ◽  
Domestic Firms ◽  
The Impact ◽  
Local Firms

PurposeThis study focuses on the linkages between foreign direct investment and the research and development (R&D) and innovation activity of domestic enterprises in Vietnam.Design/methodology/approachThe Heckman selection model approach is applied to a panel dataset of nearly 7,000 Vietnamese firms for the 2011–2015 study period to investigate the impact of foreign presence on the R&D of local firms through horizontal and vertical linkages. Probit model estimation is employed to examine how foreign investment influences the innovation activity of local companies.FindingsWhile there are a small number of firms carrying out R&D activities in Vietnam, foreign or joint domestic–foreign venture firms are less inclined than domestic firms to undertake R&D. Domestic factors that include capital, labor quality, location and export status of firm have a significant effect on the decision of domestic firms to participate in R&D activity. Only forward linkages and the gross firm output are found to have an impact on the R&D intensity of domestic enterprises, while other factors appear to have no significant influence on how much firms spend on R&D activities.Practical implicationsIn order to promote the R&D activity of domestic firms, policy should focus on (1) the backward linkages between local firms in downstream sectors with their foreign suppliers in upstream sectors, and (2) the internal factors such as labor, capital or location that affect the decisions made by domestic firms.Originality/valueGiven that foreign investment may affect R&D and innovation activity of local firms in host countries, the impact is relatively unexplored for many emerging economies and not so in the case of Vietnam. The availability of a unique survey on Vietnamese firm technology and competitiveness provides the opportunity to address this gap in the literature.

Does foreign direct investment spillover total factor productivity growth? A study of Indian drugs and pharmaceutical industry

2017 ◽  
Vol 24 (7) ◽  
pp. 1937-1955 ◽  
Author(s):  
Nitin Arora ◽  
Preeti Lohani
Keyword(s):  
Foreign Direct Investment ◽  
Pharmaceutical Industry ◽  
Total Factor Productivity ◽  
Direct Investment ◽  
Spillover Effect ◽  
Foreign Firms ◽  
Factor Productivity ◽  
Content Type ◽  
Domestic Firms ◽  
Tfp Growth

Purpose Foreign firms have certain advantages which may spillover to domestic firms in the form of improvements in total factor productivity (TFP) growth. The purpose of this paper is to empirically observe the presence of TFP spillovers of foreign direct investment (FDI) to domestic firms through analyzing source of TFP growth in Indian drugs and pharmaceutical industry. Design/methodology/approach This paper examines the sources of TFP spillovers of FDI in Indian drugs and pharmaceutical industry over the period 1999 to 2014. The data of 304 firms has been used for estimation of the growth rates of TFP and its sources under stochastic frontier analyses based Malmquist productivity index framework. For frontier estimation, the Wang and Ho (2010) model has been executed using translog form of production function. Findings The results show that there exists significant TFP spillover effect from the presence of foreign equity in drugs and pharmaceutical industry of India. The results also show that the major source of TFP fluctuations in the said industry is managerial efficiency that has been significantly affected by FDI spillover variables. In sum, the phenomenon of significant Intra-industry (horizontal) efficiency led productivity spillovers of FDI found valid in case of Indian drugs and pharmaceutical industry. Research limitations/implications The number of foreign firms is very less to imitate the significant impact of foreign investment on TFP growth of Indian pharmaceutical industry at aggregated level; and the Wang and Ho (2010) model is failing to capture direct impact of FDI on technological change under Malmquist framework. Practical implications Since, there exists dominance of domestic firms in Indian drugs and pharmaceutical industry, the planners should follow the policy which not only attract FDI but also benefit domestic firms; for example, developing modern infrastructure and institution which will further help domestic firms to absorb spillovers provided by the Multinational Corporations and also accelerate the growth and development of the economy. Social implications In no case, the foreign firms should dominate the market share otherwise the efficiency spillover effect will be negative and the domestic firms will be destroyed under the self-centric approach of foreign firms protected by the recent patent laws. Originality/value The study is a unique attempt to discuss the production structure and sources of TFP spillovers of FDI in Indian drugs and pharmaceutical industry with such a wide coverage of 304 firms over a period of 16 years under Wang and Ho (2010) model’s framework. The existing studies on TFP spillovers are using either a small sample size of firms or based upon traditional techniques of measuring spillover effects.

scholarly journals Does Chinese Inward Foreign Direct Investment Improve the Productivity of Domestic Firms? Horizontal Linkages and Absorptive Capacities: Firm-Level Evidence from Ethiopia

2020 ◽  
Vol 12 (7) ◽  
pp. 3023 ◽  
Author(s):  
Engidaw Sisay Negash ◽  
Wenjie Zhu ◽  
Yangyang Lu ◽  
Zhikai Wang
Keyword(s):  
Sustainable Development ◽  
Foreign Direct Investment ◽  
Absorptive Capacity ◽  
Direct Investment ◽  
Efficient Technology ◽  
Chinese Firms ◽  
Firm Level ◽  
Domestic Firms ◽  
Positive Spillovers ◽  
Local Firms

Publicized as a global call for action in 2015, the United Nations General Assembly (UNGA) has forwarded an agenda of resolutions to achieve the goals of sustainable development by 2030 (SDGs). Due to the specific challenges of funding gaps and the lack of advanced technology, the majority of Sub-Saharan African (SSA) countries are still behind the standard of world development. Since foreign direct investment (FDI) has the potential to bring much-needed capital and efficient technology, FDI has often been considered as a vigorous source of development, even for sustainable development for under-developing economies experienced today. Conspicuously, Chinese outward FDI (OFDI) into SSA has seen a strong upward trend in the 21st Century, after China proclaimed its “go global” strategy. Ethiopia is one of the favored destinations of the trend of Chinese OFDI, which also substantially continues through the SSA region. The hosting economy of Ethiopia expected that Chinese inward FDI comes with capital, efficient technology, and knowledge to contribute innovations through directly improving productivity and competitiveness via technological diffusion to domestic industries and eventually for sustainable development. Against this backdrop, this study utilizes firm-level panel datasets from Ethiopia to address the following couple of research questions. The first question is: are there any productivity differences between the establishment of Chinese-affiliated and domestic firms in the manufacturing industry in Ethiopia? The second is, does the presence of Chinese-affiliated firms provide productivity spillovers for domestic firms in the same industry level for socio-economic development? The investigation was carried out using 2554 manufacturing firm census data, from which 15.04% were Chinese firms operating in Ethiopia. We used the ordinary least squares (OLS) and generalized-method-of-moments (GMM) two-step approaches for estimations. Our findings revealed that, generally, Chinese firms were more productive than local firms and their presence can bring positive potential productivity spillover effects for domestic firms. Specifically, we found that local firms have gained significant positive spillovers when they had a high absorptive capacity, whereas low-absorptive capacity firms suffered negative spillovers. We also found that non-exporting domestic firms experience significant positive spillovers from the presence of Chinese firms.

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